Dynamic scoring: Difference between revisions
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==History== |
==History== |
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Dynamic scoring has recently been promoted by conservatives to argue that supply-side tax policy, for example the [[Bush tax cuts]] of 2001<ref>{{cite web|last=Wilson|first=D|title=The Economic Impact of President Bush's Tax Relief Plan|url=http://origin.heritage.org/Research/Reports/2001/04/The-Economic-Impact-of-President-Bushs-Tax-Relief-Plan|publisher=The Heritage Foundation|accessdate=6 April 2011|coauthors=William Beach}}</ref> and 2011 GOP Path to Prosperity proposal<ref>{{cite web|last=Ryan|first=Paul|title=Path to Prosperity 2012|url=http://paulryan.house.gov/UploadedFiles/PathToProsperityFY2012.pdf|accessdate=6 April 2011}}</ref>, return higher benefits in terms of GDP growth and revenue increases than are predicted from static scoring. |
Dynamic scoring has recently been promoted by conservatives to argue that supply-side tax policy, for example the [[Bush tax cuts]] of 2001<ref>{{cite web|last=Wilson|first=D|title=The Economic Impact of President Bush's Tax Relief Plan|url=http://origin.heritage.org/Research/Reports/2001/04/The-Economic-Impact-of-President-Bushs-Tax-Relief-Plan|publisher=The Heritage Foundation|accessdate=6 April 2011|coauthors=William Beach}}</ref> and 2011 GOP Path to Prosperity proposal<ref>{{cite web|last=Ryan|first=Paul|title=Path to Prosperity 2012|url=http://paulryan.house.gov/UploadedFiles/PathToProsperityFY2012.pdf|accessdate=6 April 2011}}</ref>, return higher benefits in terms of GDP growth and revenue increases than are predicted from static scoring. The premise is that lower tax rates result in increased economic growth, and subsequently increased tax revenues, however there is no evidence that this is true<ref>http://www.forbes.com/sites/leonardburman/2012/03/15/capital-gains-tax-rates-and-economic-growth-or-not/</ref><ref>http://economix.blogs.nytimes.com/2012/09/15/tax-cuts-and-economic-growth/</ref>. Historically, the periods of highest U.S. economic growth in fact correspond with higher marginal tax rates<ref>http://www.washingtonpost.com/blogs/wonkblog/post/tax-rates-and-economic-growth-in-one-graph/2011/05/19/AGLaxJeH_blog.html</ref>. |
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Dynamic scoring has its origins in Arthur Laffer's "[[Laffer Curve]]" (i.e. tax receipts vs tax rates) of the Reagan administration |
Dynamic scoring has its origins in Arthur Laffer's "[[Laffer Curve]]" (i.e. tax receipts vs tax rates) of the Reagan administration. Some trace the philosophy back to President Kennedy, who in 1963 proposed to reduce the top marginal rate from 91% to 65%<ref>http://www.usnews.com/opinion/articles/2011/01/26/the-myth-of-jfk-as-supply-side-tax-cutter</ref>: "To achieve these greater gains, one step, above all, is essential--the enactment this year of a substantial reduction and revision in Federal income taxes."<ref>http://infomotions.com/etexts/gutenberg/dirs/etext04/suken11.htm.</ref>. |
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==Criticism== |
==Criticism== |
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Revision as of 19:43, 4 December 2012
Dynamic scoring predicts the impact of fiscal policy changes by forecasting the effects of economic agents' reactions to incentives created by policy. It is an adaptation of static scoring, the traditional method for analyzing policy changes.
The method yields a more accurate prediction of a policy's impact on a country's fiscal balance and economic output when it can be performed accurately. The potential for heightened accuracy arises from recognition that households and firms will alter their behavior to continue maximizing welfare (households) or profits (firms) under the new policy. Dynamic scoring is more accurate than static scoring when the econometric model correctly captures how households and firms will react to a policy change.
Dynamic scoring is difficult to apply in practice due to the complexity of modeling economic agents' behavior. Economists must infer from economic agents' current behavior how the agents would behave under the new policy. Difficulty increases as the proposed policy becomes increasingly unlike current policy. Likewise, the difficulty of dynamic scoring increases as the time horizon under consideration lengthens. This is due to any model's intrinsic inability to account for unforeseen external shocks in the future.
Further, the reaction to policy changes may not occur quickly, and thus an intrinsic lag in market behavior obscures the real effect of policy changes.
History
Dynamic scoring has recently been promoted by conservatives to argue that supply-side tax policy, for example the Bush tax cuts of 2001[1] and 2011 GOP Path to Prosperity proposal[2], return higher benefits in terms of GDP growth and revenue increases than are predicted from static scoring. The premise is that lower tax rates result in increased economic growth, and subsequently increased tax revenues, however there is no evidence that this is true[3][4]. Historically, the periods of highest U.S. economic growth in fact correspond with higher marginal tax rates[5].
Dynamic scoring has its origins in Arthur Laffer's "Laffer Curve" (i.e. tax receipts vs tax rates) of the Reagan administration. Some trace the philosophy back to President Kennedy, who in 1963 proposed to reduce the top marginal rate from 91% to 65%[6]: "To achieve these greater gains, one step, above all, is essential--the enactment this year of a substantial reduction and revision in Federal income taxes."[7].
Criticism
Some liberal economists have argued that conservatives have oversold the conclusions of dynamic scoring[8], that current CBO practices already include some dynamic scoring elements[9] and that to include more may lead to politicization of the department[9].
References
- ^ Wilson, D. "The Economic Impact of President Bush's Tax Relief Plan". The Heritage Foundation. Retrieved 6 April 2011.
{{cite web}}: Unknown parameter|coauthors=ignored (|author=suggested) (help) - ^ Ryan, Paul. "Path to Prosperity 2012" (PDF). Retrieved 6 April 2011.
- ^ http://www.forbes.com/sites/leonardburman/2012/03/15/capital-gains-tax-rates-and-economic-growth-or-not/
- ^ http://economix.blogs.nytimes.com/2012/09/15/tax-cuts-and-economic-growth/
- ^ http://www.washingtonpost.com/blogs/wonkblog/post/tax-rates-and-economic-growth-in-one-graph/2011/05/19/AGLaxJeH_blog.html
- ^ http://www.usnews.com/opinion/articles/2011/01/26/the-myth-of-jfk-as-supply-side-tax-cutter
- ^ http://infomotions.com/etexts/gutenberg/dirs/etext04/suken11.htm.
- ^ "Brad deLong's blog". Delong.typepad.com. 2006-05-15. Retrieved 2012-03-27.
- ^ a b "Center on Budget and Policy Priorities" (PDF). Retrieved 2012-03-27.
See also
External links
- Doesn't Anyone Know the Score? by Newt Gingrich and Peter Ferrara
- Dynamic Due by Bruce Bartlett
- "Here's How Part B Can Save Medicare," by Michael Johns, HME News, July 2009.
- Dynamic Scoring: An Introduction to the Issues By Alen J. Auerbach
- Dynamic Analysis at Treasury: What Are the Next Steps? By Tracy Foertsch
- Resources on the Dynamic Scoring Issue By The Tax Foundation
- Dynamic Scoring: A Back-of-the-Envelope Guide by N. Gregory Mankiw and Matthew Weinzierl
- The Bush Budget's Hidden Gold: Dynamic Scoring Comes to the Treasury By William Beach
- Why the GOP loves ‘dynamic scoring’ by Suzy Khimm
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